L Dean Davidson

POSTED BY THE WALL STREET JOURNAL TODAY 10/29/2009

Wall Street Journal 10/29/09

WASHINGTON -- Senate negotiators reached a tentative deal to extend a tax credit for first-time home buyers, but its passage remains uncertain.

The agreement would extend the existing credit for first-time home buyers, worth up to $8,000, while offering a new credit of up to $6,500 for some existing homeowners, Senate aides said. The reduced credit would be available to all home buyers who have been in their current residence for a consecutive five-year period in the past eight years.

The new provisions are aimed at broadening availability of the credit beyond first-time buyers and giving the weakened real-estate market a bigger boost while preventing real-estate investors from benefiting.

Many property experts have cited the credit as a reason for signs of recovery in the housing market in recent months. But that recovery was somewhat undercut by the September drop in new-home sales reported Wednesday.

The credit would be extended from its current expiration date of Dec. 1 to all contracts entered into by April 30, and closed before July 1. It is expected that income limits on people claiming the credit would be increased to $125,000 for singles and $250,000 for couples, from the current $75,000 and $150,000, aides said. The credit phases out for people making more than those amounts.

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I will continue to post updates on this piece of legislation until resolution is achieved or died.

On November 30 the $8,000. Federal Tax Credit for first time homebuyers will expire. This stimulus has helped the real estate and building industries the last several months, as it has allowed markets to reduce some of their inventories, and brought action to buy from many who were sitting on the fence to see what happens with interest rates and prices. The problem was the limited scope of the program.

I've written previously that this stimulus should have been offered to any buyers regardless of of their status, and the price range of the home purchase (as long as it primary residence, or home used by a family member, such as inlaw or dependent in college). This would have relieved much more inventory and at fairer prices to the sellers, allowed people who wish, or need, to relocate to sell their homes, and created a demand once more for new construction, putting many layed off construction and related trade workers back on the payrolls, reducing the growth of unemployment overall.

This still may happen, and that should be good news. There has been legislation introduced in several forms, which extends the current program another 6 monthe to a year, and more importantly, broadens its scope to include the homebuyers who are not first timers, and are looking to move up or move out. If this legislation does not pass, and the current program expires as scheduled, the gains made over the last several months will be eclipsed by growing unemployment, which is already dangerously close to the 10% mark.

If you are reading this post, please be pro-active and contact your Representatives and urge the passing of this legislation. It has more long reaching effect on the nations economy right now than anything else that can be on the table. Our voice, whether raised with pen or phone, is the most powerful tool the average citizen has at their disposal. Let's use it.

I bet most of you are like me and a little conflicted over the mixed messages regarding the home real estate market conditions. I stated not long ago that we are supposed to be in a super buyers market, and that, literally, should be the case. However, it is not really a buyer's market unless buyers are buying.

It is true we have seen an upturn in sales contracts (pendings) and closings the last couple of months. This was to be expected due to the tax incentives passed down by the Fed for "first time homebuyers". These were defined as anyone who has not owned a home in three years or more. They have made up the bulk of the gains the market has made this year.

Smoke and mirrors? Possibly. The tax incentive could have been extended to anyone buying a home in the year 2009, regardless of price point, or residency status. In other words, investors could have been incentivised to buy as well, thereby relieving the market of more of the previously foreclosed properties. With that inventory reduced, more people that were desiring to move up, could have sold there existing homes a lot faster, and made that next purchase possible. This would have really helped the home builders who have had to lay a lot, if not most, of their labor force off.

As I said earlier, indicators say we are bottoming out of this real estate recession. Maybe. My concern is that the stimulus measures are not going to work fast enough to turn the tide of rising unemployment, and this recovery will begin to reverse itself before it really has solidly begun.

Let's hope the administration is not sandbagging these stimulus funds until it can serve them in 2011-12 to assure re-election.

Feel free to email me or post your comments to this site.

Fence sitters may be dealing with an opportunity lost by trying to time the market in hopes of a "better deal". The following demonstrates that which we have been saying for months.

As the pressure for higher mortgage rates has increased in recent weeks, investors have speculated that the Fed would step in to "defend" certain interest rate levels, but that hasn't happened. This week, Fed officials explained that their mortgage-backed securities (MBS) purchases are designed to support the mortgage market and not to set rates. The Fed's MBS purchases of $25.5 billion this week were similar to levels seen in recent weeks. Disappointed that the Fed hasn't increased its quantity of asset purchases, investors sold MBS this week, and mortgage rates moved higher.

A number of factors have been developing which typically push interest rates higher. The coming supply of debt needed to pay for government programs will compete for investor funds. Despite strong demand for this week's large Treasury auctions, investors are concerned that higher rates will be required in the future. In addition, an improved economic outlook has made investors more willing to move funds to riskier assets and away from safer assets such as bonds. It also means that higher inflation may be a concern sooner than previously expected.

Info courtesy of Jeff Cook, Bradford Mortgage Company.

This afternoon investors decided the selloff of MBS was overdone and favorable re-pricing took place.

Rates are still EXCELLENT!

Here's a sample of Primary Home Purchase money rates today, up to 0+1, with escrows for a borrower with median credit of 720-760. These are subject to vary based on loan amount, occupancy, LTV, credit quality and other factors.

Conforming (using 250K as amt)

30 yr fixed 4.875%

15 yr fixed 4.5%

5/1 ARM, 30 yr am 4.00%

Jumbo (using 650K as amt)

30 yr fixed 6.00%

15 yr fixed 5.00%

5/1 ARM, 30yr am 4.375%

Super Jumbo (using 1M amt)

30 yr fixed 6.125%

15 yr fixed 5.00%

5/1 ARM, 30 yr am 4.375%

Complements of Ashleigh Sumlin, Bradford Mortgage Company, 704-307-9908

We are closing in on almost 4 months since the benefits of the Stimulus Package for home buyers was announced. Unfortunately, the incentives have not yet spurned an appreciable amount of buying activity, though some markets have reported some modest upswings in the past 3 months.

So, why haven't the results been more dramatic. To begin with, the stimulus package didn't reach deep enough into the population to benefit all buyers at all levels of the economic scale. Anyone that is not a classified "first time buyer" does not get the $8,000. Federal tax credit that is promised the first time buyer. They are also the ones who can afford in many cases to wait and try to time the market, hoping for a better deal. They are not likely to be that smart, and will not benefit by waiting near as much as they would by buying now, and do their share to restimulate the economy.

The first time buyer, on the other hand, is the one most likely to be timid about making their investment in a new home during a period of uncertainty, and when jobs are being lost everyday. They are influenced by watching their family members and neighbors come home with their pink slips, and scared they may be next. Understandable, and totally a part of our human nature.

Both of these groups of potential home buyers could do a lot very quickly to jump start the economy, the stock market, and the general feeling of well-being across the land by doing what they already want to do. They could stop the bleeding in the employment numbers, reducing the risk of losing their own jobs, open the home building businesses, and all those that support it with the products they sell, and send a clear and message to the world that it is the consumer that leads out of recessions, not governments.

The only thing that the government can do, is provide the atmosphere for that buying activity, and it has fallen sadly short of creating that incentive. Spending on it's favorite programs is not the answer, and I believe the economic indicators, after 4-5 months now, has told us just that. The question still remains, will the public take the bull by the horns, or wait for mother Govco to solve it's problem?